Weighted Alpha

AAA

DEFINITION of 'Weighted Alpha'

A weighted measure of how much a stock has risen or fallen over a certain period, usually a year. Generally, more emphasis is placed on recent activity by assigning higher weights to it than those assigned to earlier movements. This helps to give a return figure that has a greater focus on the most current period and is a more relevant measure for short-term analysis. This technique is popular with technical analysts.

INVESTOPEDIA EXPLAINS 'Weighted Alpha'

If the stock was up over the period, it will have a positively weighted alpha. An unchanged stock price has a small weighted alpha. A stock whose price has fallen over the period will have a negatively weighted alpha. Technical analysts use this measure to identify companies that have shown a strong trend over the past year and, more specifically, to focus their attention on companies whose momentum is building.

RELATED TERMS
  1. Stock

    A type of security that signifies ownership in a corporation ...
  2. Trend

    The general direction of a market or of the price of an asset. ...
  3. Momentum

    The rate of acceleration of a security's price or volume. The ...
  4. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
  5. Weighted

    A mathematical process by which figures and/or components are ...
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    The gain or loss of a security in a particular period. The return ...
RELATED FAQS
  1. What are the best technical indicators to complement Weighted Alpha?

    Weighted alpha isn't necessarily meant to complement other technical indicators; instead, it helps technical investors and ... Read Full Answer >>
  2. How do I use Weighted Alpha to create a forex trading strategy?

    In foreign exchange or conventional security markets, weighted alpha is designed to help discriminate between different instruments ... Read Full Answer >>
  3. What is a common strategy traders implement when using the Weighted Alpha?

    A trader can use weighted alpha to measure a stock's price action over a certain time frame, usually measuring growth over ... Read Full Answer >>
  4. Why is the Weighted Alpha important for traders and analysts?

    The weighted alpha is a technical indicator used by traders and analysts to identify securities that have performed well ... Read Full Answer >>
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